The following table presents the carrying amounts, net of discount and deferred financing costs, and estimated fair values of the Company’s financial instruments (in thousands):

	March 31, 2021						December 31, 2020
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
12.00% Second-Priority Senior Secured Notes – due January 2026	$	581,728		$	636,012		$	—		$	—
11.00% Second-Priority Senior Secured Notes – due April 2022	$	—		$	—		$	343,579		$	355,935
7.50% Senior Notes – due May 2022	$	6,060		$	3,333		$	6,060		$	5,238
Bank Credit Facility – matures May 2022	$	461,577		$	465,000		$	635,873		$	640,000
Oil and Natural Gas Derivatives	$	(156,941	)	$	(156,941	)	$	(67,814	)	$	(67,814	)

As of March 31, 2021 and December 31, 2020, the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short-term nature of these instruments.

The $650.0 million aggregate principal amount of 12.00% Second-Priority Senior Secured Notes (the “12.00% Notes”) is reported on the Condensed Consolidated Balance Sheet as of March 31, 2021 at its carrying value, net of original issue discount and deferred financing costs, see Note 6 — Debt. The fair value of the 12.00% Notes is estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

The $347.3 million aggregate principal amount of 11.00% Second-Priority Senior Secured Notes (the “11.00% Notes”) was redeemed on January 13, 2021, see Note 6 — Debt. The fair value of the 11.00% Notes prior to the redemption was estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

The $6.1 million aggregate principal amount of 7.50% Senior Notes (the “7.50% Notes”) is reported on the Condensed Consolidated Balance Sheet as of March 31, 2021 at its carrying value, see Note 6 — Debt. The fair value of the 7.50% Notes is estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

The Company and Talos Production Inc., our wholly-owned subsidiary that was formerly known as Talos Production LLC, maintains a Bank Credit Facility with a borrowing base of $960.0 million at March 31, 2021 (the “Bank Credit Facility”), which is reported on the Condensed Consolidated Balance Sheet as of March 31, 2021 at its carrying value net of deferred financing costs, see Note 6 — Debt. The fair value of the Bank Credit Facility is estimated based on the outstanding borrowings under the Bank Credit Facility since it is secured by the Company’s reserves and the interest rates are variable and reflective of market rates (representing a Level 2 fair value measurement).

The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Collar contracts typically require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as “Price risk management activities income (expense)” on the Condensed Consolidated Statements of Operations in each period.

The following table presents the impact that derivatives, not qualifying as hedging instruments, had on its Condensed Consolidated Statements of Operations (in thousands):

The following table reflects the contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of March 31, 2021:

Production Period	Instrument Type	Average Daily Volumes		Weighted Average Swap Price		Weighted Average Put Price		Weighted Average Call Price
Crude Oil – WTI:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
April 2021 – December 2021	Swaps		24,429	$	44.89	$	—	$	—
April 2021 – December 2021	Collars		1,000	$	—	$	30.00	$	40.00
January 2022 – December 2022	Swaps		16,605	$	47.22	$	—	$	—
January 2023 – June 2023	Swaps		2,000	$	53.33	$	—	$	—
Crude Oil – LLS:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
April 2021 – December 2021	Swaps		3,335	$	41.06	$	—	$	—
Natural Gas – NYMEX Henry Hub:		(MMBtu)		(per MMBtu)		(per MMBtu)		(per MMBtu)
April 2021 – December 2021	Swaps		56,385	$	2.52	$	—	$	—
April 2021 – December 2021	Collars		5,000	$	—	$	2.50	$	3.10
January 2022 – December 2022	Swaps		30,882	$	2.62	$	—	$	—
January 2023 – June 2023	Swaps		5,000	$	2.61	$	—	$	—

The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

	March 31, 2021
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas swaps and costless collars	$	—	$	3,843		$	—	$	3,843
Liabilities:
Oil and natural gas swaps and costless collars		—		(160,784	)		—		(160,784	)
Total net liability	$	—	$	(156,941	)	$	—	$	(156,941	)

	December 31, 2020
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas swaps and costless collars	$	—	$	7,821		$	—	$	7,821
Liabilities:
Oil and natural gas swaps and costless collars		—		(75,635	)		—		(75,635	)
Total net liability	$	—	$	(67,814	)	$	—	$	(67,814	)

Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis in its Condensed Consolidated Balance Sheets. On derivative contracts recorded as assets in the table below, the Company is exposed to the risk the counterparties may not perform. The following table presents the fair value of derivative financial instruments (in thousands):

	March 31, 2021				December 31, 2020
	Assets		Liabilities		Assets		Liabilities
Oil and natural gas derivatives:
Current	$	1,720	$	133,167	$	6,876	$	66,010
Non-current		2,123		27,617		945		9,625
Total	$	3,843	$	160,784	$	7,821	$	75,635

The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company entered into International Swaps and Derivative Association agreements with counterparties to mitigate this risk. The Company also maintains credit policies with regard to its counterparties to minimize overall credit risk. These policies require (i) the evaluation of potential counterparties’ financial condition to determine their credit worthiness; (ii) the regular monitoring of counterparties’ credit exposures; (iii) the use of contract language that affords the Company netting or set off opportunities to mitigate exposure risk; and (iv) potentially requiring counterparties to post cash collateral, parent guarantees, or letters of credit to minimize credit risk. The Company’s assets and liabilities from commodity price risk management activities at March 31, 2021 represent derivative instruments from nine counterparties; all of which are registered swap dealers that have an “investment grade” (minimum Standard & Poor’s rating of BBB- or better) credit rating, and all of which are parties under the Company’s Bank Credit Facility. The Company enters into derivatives directly with these counterparties and, subject to the terms of the Company’s Bank Credit Facility, is not required to post collateral or other securities for credit risk in relation to the derivative activities.